How to Start Dividend Investing for Beginners (Full Course)

[Music] in today's class I'm going to teach the ultimate beginner's guide to Dividend investing you're going to learn why this strategy has been so popular for over a 100 years I'm going to share with you the historical rates of return from a dividend investing strategy so you can see how it Stacks up and compares to other strategies and I'm going to walk you through my own process of stock Selection how to choose the best dividend stocks to buy and to hold in my long-term portfolio Okay let's go ahead and jump right in here this is

a five chapter class we're going to teach all five chapters today in one stretch so grab a notepad grab a pen and let's go ahead and jump in with chapter one intro to Dividend investing so I'm going to answer your first question which is Ross what is a dividend and how does the strategy work the dividend investing Strategy is based on buying shares of companies that have elected to pay out a dividend a dividend is a check that all the shareholders on record receive and it is a distribution of a little bit of the company's

profit now Dividends are paid out on a quarterly schedule and in this example here the company has elected to pay out a dividend of 25 cents per share and they do that four times a year so if you own 1,000 shares times 25 cents you would get a check for $250 four times a year and that right there is the definition of passive income you are being rewarded as a shareholder of this company there are some investors who say why would you ever buy shares of a company that don't pay out a dividend you know

if you buy a rental property don't don't you want to receive rental income if you buy a stock don't you want to get dividend income yes you do now the reason that some people will buy shares of companies that Don't pay out dividends is because they believe the value of the stock is going to go up so much over the next few years it'll far exceed what they might make in dividend returns but naturally it's more speculative that's like buying a property that's not going to produce any cash flow or any profit over the next

3 years but you hope that you'll be able to sell it for more money later well what if the market goes down then you're stuck with it now if you're holding a Dividend paying stock and the market suddenly drops yes the underlying value of your stock has declined from let's say $100 a share even if it went all the way down to $50 a share a 50% drop but you would still be receiving the same 25 cents per share because it's based on the number of shares you're holding and so what would effectively happen is

the amount of money being paid out as a dividend that percentage would increase based on the total amount of money you Had in the trade but the dividend amount would remain the same and that's why this has been such a popular strategy because even during stock market crashes even during the Great Depression these companies continue to pay out a dividend so if you want to live off of dividends knowing that this income is more or less protected even during stock market recessions and depressions you need to do the math so let's say you want to

get $10,000 every quarter well now you need To back out here and figure out how many shares of this company would I need to own and the answer here is 40,000 now it's possible that owning 40,000 shares of this company is cost prohibitive for you right now which means you would need to look for a company that pays out a higher quarterly dividend and that's easy to do based on what I'm going to show you later in this class now of course the nice thing with investing in stocks is that they are very liquid you

Can get in and you can get out quickly but I am a big fan of dividend stocks just because the The General concept of I like getting paid for holding shares of this company so what happens for a lot of companies is that in their early stages of growth when they're growing really quickly the the growth phase they don't pay out a dividend they reinvest all the profit in growing the company making the company bigger and bigger and bigger so they can make more and more Money and that's the phase where some investors are going

to invest in these early phase uh stocks that are in the growth phase okay I get it I understand that strategy but at certain point those companies could get to a scale where they can no longer reasonably invest all of the money that they're making each year and continue to scale the company exponentially there is no exponential curve on a company's growth it just doesn't you know work like that to Infinity what ultimately happens and it's happened with um even you know big investment firms like birkshire hathway they have periods of really big growth and

then when they get so big the growth sort of slows down so this is the phase where the growth slows down that the companies often will elect to begin paying out a dividend and it's in the form of a per share payment so it's based on how many shares you own of the company okay so let's say you own 1,000 Shares of a company and they're paying out an 80 um sorry an 80 cent annual dividend they're going to pay that out 20 cents per quarter so every uh quarter you're going to get a check

for $200 at the end of the year you're going to have made $800 basically this is passive income you don't have to do anything for it all you're doing is holding the stock but you're getting rewarded for it and you're making $800 by the end of the Year now the problem well so two things so number one there's a lot of advantages to Dividend investing because you can receive this $800 but you're not having to sell any of your shares however the the problem or perhaps the downside is that you're now investing in stocks that

are at a lower rate of growth over the long term so you have to factor in your dividend payments as part of the return that you're receiving and that can be a little hard because Sometimes people say well geez I bought this stock at 100 and now it's been two years and it's only at let's say $110 which means it's only gotten up like 5% and another 5% more or less right so they'll say ah it's not really performing but you were receiving a dividend so now you have to factor in how much you made

in dividends over those two years with the the the actual rate of return and I think that's easy for most people to understand when on Who sort of lay it out but initially some people are put off by dividend stocks because they just say oh you know they're not going to return you know 20% in in one year like maybe Tesla will but remember with dividends you're getting that dividend whereas with growth stocks it's much more speculative okay so the reason I like dividend stocks so much is because I value assets that produce cash flow

I don't like assets that I'm holding it And it's based purely on the speculation that's it's going to be worth more later you know like Bitcoin you don't get a dividend you buy it and then you know you hope it's worth more later I would much rather buy shares of a real company hold those shares and receive a payment a small distribution of shareholder profits every single year in the form of a dividend that's awesome so what I like about dividend stocks even more than real estate is that it is a liquid asset What I

mean by that is is that in the form of real estate when you've got a piece of real estate and you want to sell it you know you can't sell it just like that you can't sell it just by pressing a button and when you do sell it you've got to pay real estate fees taxes and all this stuff what I really like about dividend stocks and the stock market in general is the liquidity that you can buy with a click of a button and you're in and when you want to get out You can

sell it and just like that it's gone so there's a feeling where you don't have to be incredibly committed to the stock if you want to get get out just like that it's gone and you're out so I love that about stocks in general and dividend stocks are great because not only do you receive some passive income from it you also have the ability just to sell it whenever you want now like real estate um dividend stocks can be used as collateral for borrowing as I'm sure you're uh well aware many people will buy a

home putting down you know 20% or something like that and then the remaining 80% is financed by the lender now with the stock market you can buy Buy on Leverage where you put down 50% and then your broker will match that and give you another 50% for investing traditionally it's considered pretty risky to be investing as a novice retail investor on Leverage it's one thing day trading on Leverage is also risky but at Least with day trading our exposure is minimized by the fact that we're not holding the stocks for very long when you're investing

and you're holding overnight that's when you do subject yourself to the risk of being in when some really bad news comes out and all of a sudden we see you know a crash in the market now even in spite of stock market crashes the dividend investing strategy has been proven to still be profitable over the long term when you Look at very very short windows of time like a three-month window there could be periods where it's losing but then it makes up for it over time so the reality is that investing on Leverage is quite

risky but what you can do and what a lot of banks will let you do is you can hold hold your your entire portfolio right here and then you can borrow against it to put that money somewhere else so if you want to borrow against that portfolio to invest in real estate or Something like that then you can use it as collateral now most people probably wouldn't choose to do that but it's nice that it is an option and obviously because I trade in a Roth IRA I love that the dividend investing strategy works well

in this type of account Roth IRAs are tax-free so you don't pay any income tax on your dividend payments and the growth of the stock is also uh will be taxfree when you eventually sell it this is very much A passive strategy based just on the amount of time commitment required to generate the income you put the you buy a position and you can hold it for years historically dividend stocks have been a defensive investment that do perform well in poor markets and I really like that about them I feel like I personally have more

Market exposure than the typical person might because I'm a Trader so my day trading income is dependent on the performance of the Market you know I I will do well I've made money in bare markets but I make more money in Bull markets so if I'm not going to make as much during a bare market then I don't want to also put my long-term investments in a vehicle that's also going to really struggle during a bare Market I have to be a little bit more defensive than somebody else now someone that has income that goes

up during a bare Market um you know they they could treat things Differently but every everyone's different so that's just my uh two cents so I prefer the defensive nature of dividend stocks and additionally something that is nice is that you can produce income not just from the dividend that you get but you can also produce income through the use of options trading against the position with covered calls and cash secured puts we'll talk about those more uh a little bit later in the class because they're More advanced so when we look at the history

of dividend investing going back to 1960 84% of the return of the S&P 500 Index can be attributed to reinvesting dividends and the power of compounding growth this is really powerful this is the difference between $795,000 and nearly 5 million bucks all right so Dividends are a big deal now when we look at the dividend return versus Market return by decade in the 1940s dividends accounted for 60% % 67% Of the total returns in the 1950s they accounted for 30% they were 44% in the 1960s they were 73% during the 1970s which was a terrible

year or terrible decade for stock market performance in the 1980s they accounted for 28% and they accounted for just 16% during the 1990s during the 1990s and this was we led into the bubble the market was so strong that companies started decreasing their dividend and reinvesting in their in in theirselves to help the company Grow and capitalize and make as much as they could during the 90s but then we went into the 2000s which was a l decade and the only return was from dividends but it was lower than uh in previous decades because companies

had changed their priorities the 2010s this was uh the recovery during the Great re from the Great Recession strong market performance smaller dividend return the 2020s so far has been um smaller as well as we've had strong growth in the Overall market now the overall average is 40% so that's from 1930 through the end of 2021 just for reference so uh dividend Aristocrats and kings are the two stock the two types of dividend stocks that we're going to talk about especially in this class a dividend Aristocrat are stocks or companies that have been paying and

increasing dividends each year year for 25 consecutive years that's a dividend Aristocrat there are 67 stocks on this list right now it but it'll change it does change 54 of those stocks are also dividend Kings what's a dividend King a dividend King is a stock or company that's been paying and increasing dividends for 50 consecutive years there are 54 stocks on this list this is an incredible list these are the types of stocks that you don't have to worry about them decreasing or cutting the dividend so these are some of the most Defensive stocks now

because they have been paying out a dividend consecutively for so many years these are also companies that are very mature they're they're not likely to go anywhere in the next 15 20 years they should be here still but the percentage that they return is smaller and the percentage growth that they uh produce each year as a as a stock is also smaller and that's a sacrifice but this is also sort of a trade-off for a lower risk more Defensive position where you can benefit from dividend income and something that would be a bit more um

risky like some of the tech stocks right now that are producing big returns but um certainly won't sustain that forever so as an overview of the dividend investing strategy I use a set of both fundamental and Technical criteria for choosing what I believe are the strongest and most resilient dividend paying stocks I'll share this with you in Chapter 2 I Choose stocks I believe will still be paying dividends 10 years from today now of course it's just my opinion but I believe it well while I prefer not to overpay for a stock I also believe

in the ability to do cost averaging over time it's more important in my opinion to be holding a position because as soon as I'm holding a position I can begin to use options strategies to generate additional income from that position so it really is more important for me to be In in the position so I can start producing that income from options trading and as soon as I'm in I can start receiving my first dividend check at the next quarter so here's something really crazy if you had invested $20,000 into the market in 1927 just

before the Great Depression this giant stock market crash if you had done that and you had held the whole way through by 1990 you would have had 5.5 Million that is the incredible power of compound interest over 60 years 60 years in the market now some of you watching you may be young enough to be able to benefit from 60 years of compound interest if you start putting your money away today so this is very powerful it's a powerful tool that if you don't know how to capitalize on it you're going to Forever keep yourself

down so in my opinion if you're an active Trader I'm a day trader of course you you already Know that but as an active TR Trader for me I have to reinvest my trading profits into long-term uh accounts in the market so in my opinion you would be doing yourself a huge disservice if you don't reinvest some of your income whether it's day trading profits or it's the income you make at a W2 or whatever if you don't reinvest some of that income for long-term growth so I personally trade with multiple accounts so one of

the things of course that I learned Early on was that if I make more money than I need for my cost to living I'm still paying income tax on all that extra profit so I said no no no no I'm going to bring that down I'm only going to make in my taxable accounts the minimum I need to cover my cost of living and then everything from that point forward boom I'm done with that account for the rest of the year I'm not going to trade in it or for the rest of the month whatever

the case is I'm going To switch to my retirement account which is my IRA account all right so I to I use my Roth IRA and trade in that account and that way I can grow taxfree you can do the same thing you can set up a retirement account you can start funding it and you can grow wealth tax-free there is no reason you shouldn't do this compound interest at the rate of 8 to 10% a year let me just give you a couple examples if you were making 400 a day and you put half

of That away into a retirement account 200 a day if you did that in a trading account a Roth IRA or you were able to save $200 a day it's $50,000 a year if you did that for 10 years you'll have saved 500 Grand right 10 years 10 years times 50,000 a year right that's $500,000 but by the end of the 10 years because of the 8 to 10% return the compounding growth that account would already be worth $869,000 which means you've made $369,000 on compound interest and growth that is huge that's just over 10

years if you kept doing that for 20 years you'll have saved $1 million but the account will be worth nearly 3 million this compound this this Equity curve increases exponentially as you have more time I have an incredible story that I'm going to share with you about this just to really um you know bring it home now many of us um who are in this financial Space know about the rule of 4% and the rule of 300 what it says is that if you take your monthly income and you multiply it by 300 that's the

amount of money you need to have saved in order to retire so if you're spending $5,000 a month right now that's your cost of living multiply that by $300 that's $1.5 million $1.5 million is your retirement goal because once you have $1.5 million in the bank you can withdraw 4% of that and historically you've been able to Withdraw 4% indefinitely because you're benefiting from 8 to 10% growth you've got 8 to 10% growth so when you pull out 4% of that you're not pulling 4% of the growth you're pulling out 4% of the of the

principal you're still benefiting from growth the account continues to grow now certainly it's going to grow slower because you're taking money out but it'll continue to grow so uh it's been said that you can withdraw 4% per year indefinitely so on a 1.5 million Account 4% per year 60,000 a year or 5,000 a month so the way you figure out your magic number this is your retirement number is you multiply your current cost of living or your monthly income Target how much you want to be making by 300 now remember if you're not going to

retire for 20 years you should factor factor in inflation that $5,000 U today is not going to be the same it won't go as far as as it will to you know it won't go as far in 20 years so Maybe 20 years you should be at $10,000 and then you need to be at 3 million but this is something that I always think is really important I always try to educate and and provide this financial literacy of course to our members but even to those that are tuning in on YouTube because I want to

empower you to make better decisions for your future if you're able to start saving and benefiting from compound interest and you do it through dividend stocks Amazing if you want to do this investing long term and you want to buy Nvidia and Tesla and higher risk Stocks by all means it's just important that you start learning about this process it's not taught in most schools so we have to learn it on our own so I commend you for um being interested enough to spend your time learning about this so the reason the rule 4% works

is because historically the market returns 8% per year it leaves room both for withdrawals And continued account growth now there will be years where the market goes down and you're still pulling out that 4% which does hurt it but statistically this is what financial advisers have used to help uh people understand how much money they need to save in order to retire so now here is an incredible story a route to an $8 million portfolio start with Frugal Living if this isn't inspiring I don't know what is this was an article in the Wall Street

Journal it Was uh written back in 2015 about Ronald Reed now Ronald Reed was a longtime resident of brador Vermont then you may know that I grew up in Brad Vermont in fact he lived just down the street for me he died at the age of 92 and his friends were shocked to find that his estate was valued at $8 million now he did something pretty incredible and he kept it a secret and then he gave that money to the local library and the local hospital two of the biggest donations That they had ever received

but what's really incredible about this story is that this is a person who never had a fancy college degree in finance now he wasn't an MBA he was never a CEO he was never a big fancy businessman he worked at the gas station and he then he worked during his retirement at JC Penney's he had a very modest house he was very frugal which isn't necessarily something to Aspire to but what is inspirational here and I think is incredible is that From a very young age he was interested and fascinated in the stock market and

so what stocks did he buy he bought dividend paying stocks and he started doing it when he was a young man now he lived to the age of 92 he had like 70 years of compound interest and that's how you turn $220,000 into 5.5 million now he didn't start by putting a ton of money in right away what he did was he would just with each paycheck he would buy one share one share one share he Just kept buying a couple of shares a couple of shares and over the years his portfolio grew and grew

and grew so I think that this is really just an incredible story because this isn't a story of someone who is making $200,000 a year you know he wasn't making $100,000 a year he was just slow and steady reinvesting the money he made he kept his head down he kept reinvesting and he was able through you know dividend investing turn his portfolio Into $8 million so I think of trading uh specifically and investing is there's different ter there's different buckets of risk so the first bucket of risk is the lowest risk bucket and this is

where we have passive long-term investing div investing for dividend you know with a 5 to 10% return per year we're not going to get big juicy returns so if you if right now let's just say for instance you have $1,000 to your name um and this is kind of extreme but let's just say for instance and you put that whole ,000 into a dividend invest a dividend paying stock like Johnson and Johnson they probably right now pay like a 1.5% dividend so realistically you're only going to make $15 a year $15 a year on on

the dividend return now if the underlying stock Johnson Johnson goes up 5% you'll make another 50 bucks on that so you'll be up $65 on the year between The two right it's not a lot it I mean $65 this isn't even this is just this might not even cover some of the fees that would come out of your account depending on what broker you use right now okay so if you've got $1,000 you're probably going to be someone who's like a I want to buy the next cryptocurrency that's going to go up you know 8,000%

so I can turn my $100 into you know or $1,000 into 80 grand or 100 Grand or something well the the middle risk of Return is Swing trading and this is the short time frame of being an investor where you're buying something and you're holding for a few days a few weeks maybe a few months and this is what a lot of people do with Bitcoin they do it with Tesla they do it with Nvidia they you know they're trying to grow their account by at least 10% a year of course you want to if

you're going to take the risk you want to outperform the lowest risk bucket of return but you might be Able to grow your account by 100% in a year or more but uh you know there is some limit to this because you're not sitting in front of your computer so you're not able to be super super aggressive you might take some positions on your phone and sort of passively uh invest in the market it's still pretty passive and then the highest risk and return area is what I would say would be day trading it can

return over 100% in the year and Just for reference this year I started um with $116,000 in my account so $116,000 account and my account right now is just under 300 Grand and this is just it's um right now it's March so in three months my account's up already I've already more than doubled it okay so that's the power of day trading now you would say Russ well geez you know you've you've turned less than $600 in 10 million why didn't you start with 10 million in your Account you'd be up you know to 20

million wrong the reason once again is because in order to do that my average share size right now is 15,000 shares so if I was trading with a $1 million account to have the same return I would need to be trading with $150,000 shares if I was trading with a $10 million account I would need to be trading with 1.5 million share average positions give me a break you know that I can't do that I mean listen some of The stocks that I trade haven't even sold 1.5 million shares onto the market I would be

buying the entire company with you know $10 million so it's just not practical you can't scale but you can scale in these lower risk buckets so this is what I do I keep in my day trading bucket I keep about $100,000 now sometimes I keep a little bit more in it when the account's bigger right now it's close to 300,000 um but what I'll do soon is I'll take the profits out of That and I'll put it in my next bucket now the next bucket uh is bigger it it can hold a lot more in

it now this bucket let's just say for instance um well for right now we'll just for the sake of argument say we have really two buckets we have day trading and then we have uh for me long-term investing so I'm going to put it in this bucket here and this bucket could hold billions it literally could hold billions of dollars Warren Buffett Berk your hathway you Could put billions of dollars here now there's a lot of in between but some of the in between requires more active management then I'm willing to put in I put

all my energy into day trading as you might put all your energy into your regular 9 to-5 job which is fine and then the profit that I make from day trading The Profit that you make from whatever you're doing you put it aside to something passive that you don't have to think about not even a little bit it Just grows on the side because you've got your thing you have to focus on and so that's what I do this is my thing I focus on and I take all the profit and I put it over

here so this is now for me it's grown to millions and millions of dollars and it can just keep scaling so right now let's just say for well for for instance for the sake of argument let's just say I'm 20 years old but we all know that that's not true so I'm 39 years old right now so we'll just use Real numbers and stay real with this so I'm 39 years old now that means I have a solid 20 years before uh 59 which is when I can take out my Roth IRA taxfree so right

now I have 20 years to benefit from compound interest now what we know is that my account will double every uh 10 years at 7% growth rate so uh so that means every 10 years so by the age 49 this account which is at 6 million should be at 12 million by 59 it should be at 24 Million and that's if I don't keep adding to it every single year but I'm going to keep adding to it every single year now of course my results are not typical I'm producing a crazy amount of profit from

Trading so I'm just keeping funneling it into this but you can start this at your own level I'm just doing I mean listen I'm doing the same thing that maybe Warren buffer these other guys did but they did it on a much bigger level okay so it's all scalable It's all relative you don't compete against me just do what's right for you and start growing that account okay so um the the whole idea is to move profits from highrisk to lowrisk buckets now there are some people out there that I that I know who don't

take any money out of their day trading account and I actually know a story of someone who incredibly during the bubble this is insane funded an account with a very small amount of money and turned it into Over 100 million bucks I actually talked to hit the broker that was the the overseeing the firm when this Trader was doing it and he was like we were like all like watching this trade it was insane they were taking these crazy positions they were it was like they were letting it all ride letting it all ride letting

it all ride and we kept saying like when you could take money out when you could take money out and he said and this is the really incredible Thing they never took money out and then you know what happened the dot bubble burst and the account went all the way back to zero the only money he ever took out was to pay tax he never paid himself that was a huge mistake and you know you you hear these stories and you learn lessons from them so I hope you learn a lesson from that that I

learned it myself so most active Traders will keep anywhere from $5,000 to $100,000 in their active trading accounts yeah There's some Big Money traders that'll trade more but the problem is for me at least I never want to empower myself to have enough money in my account to do something really stupid just because I know I can get emotionally hijacked I could have a really bad day of trading or you know I could have bad luck I my you know young child could walk over and press a couple buttons and my dog could come up

and try to grab a bagel off my uh desk here and press the buy button For 100,000 shares of something stupid and next thing you know I'm down you know big so by consistently reinvesting profits and specifically focusing on dividend investing stocks instead of just spending them after 5 to 10 years of profitable trading and active reinvesting it's actually possible to earn more on dividence that and from passive income than from active trading last year was the first year in my career that I made more from my Long-term account which was passively invested than I

made for my short-term day trading account that was a a huge milestone for me I don't know I mean it could happen again this year I don't know you know it depends on how I do day trading if I end up having like a 3 four five a year day trading then no I'm not going to be out able to outperform that but I was able to last year and I'm really proud of that this to me is the ultimate of financial Independence most Of us are trading because we want to be independent we want

to make money on our own terms we don't want to be um you know working a nin to5 job now the beginning of financial Independence for some of you who are working 9-to-5 jobs is to start doing uh dividend investing and to start investing just in general a beginner's guide to investing you'll start making a little bit of money and then usually if you get to a point where you're making enough money you're going To take a more active role in your investing so for some people they start as passive investors and then turn into

active investors now for me because I was young I saw a lot more potential as an active Trader an active investor just because the job market during the Great Recession which is when I got into the stock market so I saw a lot more potential just going right into trading and now I'm expanding into passive investing soort so I'm doing a little Bit backwards from most people but that's okay all right so um let's go ahead and jump into chapter number two so now I want to walk you through my process of choosing the best

dividend stocks to buy because there's a lot of dividend stocks out there but I'm not going to like all of them so let me walk you through the process that I've created and I want to reiterate that this is another form of risk management as an active day trader risk management Is very different because we're buying stocks that are super extended so a stock might be up 40 50 60% and I'm buying a dip for move higher I need to use a very tight stop with the dividend investing strategy and with investing in general risk

management comes down to buying the right stock if you choose the strongest stocks that's your best uh ticket for managing risk ultimately like if if you choose a strong stock it's going to go higher if you choose a bad Stock it's going to go lower so stock selection is your best form of risk management for long-term Investments and certainly for dividend investing so my criteria when I'm looking at a dividend stock I'm going to look at four things I'm look at the dividend yield and I want to remind you that the highest yield is not

always the better the best you can get really high yields on well you could get really high yields on some stocks that are very very risky because There's there's risk that the stock is not going to be around for a long time so they're trying to attract investors with a high yield but there's a reason for that so don't fall into that trap I'll actually show you the um not just my opinion but the analytical data that the highest yielding stocks that our dividend stocks are not the the best performing so number one I do

look at the yield of course I have to uh I look at the dividend growth over the last Three years 5 years and 10 years I look at the consecutive years that the company's been paying a dividend this is important if they've been paying a dividend for only two years it could still you know it's still subject to be canceled and and not continue to pay it if they've been paying a dividend for 20 years for 30 years okay this 50 years here we go now we've got something I can feel good about and then

it'll give the dividend payout ratio this is this is Sort of helpful because it shows how much the company is burdened by the dividend they're paying out um so it's the dividend um versus the net income per share now with day trading I'm not really looking at I honestly don't look at any of this stuff for day trading but when I'm investing and I'm planning on holding something for a long time I have to look at the financial condition of the company I want to know that this Company is going to be here in a

long time so one of the most important things I look at is free cash flow free cash flow this comes back to uh some of these big investors like Peter Lynch and uh Benjamin Graham and Warren Buffett these guys are huge Advocates of buying shares of companies that are producing cash flow the company has to produce cash flow if it produces cash flow that means it's producing a profit so I want to see that it's got free cash flow it's Producing profit and I want to see the free C that free cash flow is growing

so the amount of profit they're producing is increasing not decreasing I look at the PE Ratio it's the price to earnings ratio and I also compare it to other companies in the same sector the same industry and I compare it to the PE ratio of the market as a whole the S&P 500 I look at the cash and the cash equivalence that the company has I want to see and understand whether or not you Know they're going to need to raise money anytime soon I look at their total Equity I look at the return on

the equity as a percentage I look at their total debt that they're carrying and I look at their debt to equity ratio so these are the things that I look at when I'm analyzing and doing my due diligence on a stock and trying to decide whether or not it's a stock that I want to buy now this graph breaks up dividend paying stocks into five groups the first group Is the group that pays the highest dividend but they are not the group that performs the best it's actually the second tier that performs the very best

right here as some of the stocks that uh do offer a dividend but it's a lower dividend are also somewhat lower performing so you know it is relative that it's better to have a stock that's paying a relatively higher dividend but it doesn't have to be the highest highest is not the best but uh it should Be relative to what other stocks are paying now there's some interesting um stats here about companies that grew or initiated a dividend that they've experienced the highest rates of return relative to other stocks and that's been since 1973 so

dividend Growers which means their dividend is growing and dividend initiators companies started paying add a new dividend they are returning 10% all right uh dividend payers return Uh 9% no change in dividend policy unchanged okay so they're doing just 7% dividend non-payers companies that don't pay a dividend on average from uh 1973 to 2021 paying uh or or returning 4.79% dividend Cutters and eliminators well they're not returning very well at all and then the equal weighted S&P 500 Index returning 8.2 %. and it's worth noting that um you get a dividend when you own the

S&P 500 because many of the stocks in the S&P 500 do return a Dividend so the Growers and initiators are important so when we are looking at dividend Aristocrats and dividend Kings we're looking at stocks um we're looking at companies that not only have a dividend but they're continuing to grow the dividend even if it's not by a lot it's still they're still growing it so this uh is a graph showing if you had invested your money in these different groups of stocks in 1973 where that money would be today so if you invested Just

in dividend Growers and initiators you'd be at $144,000 from uh your initial investment which um gosh now let's see now I can't remember um I lost track of what the initial investment is but it looks like it was it was very very small so very small initial investment in 1973 has grown the most with dividend Growers and initiators dividend payers equal weight S&P 500 again this is what a lot of people are going to put their money in the S&P 500 But the S&P 500 is not necessarily as you can see the best it's not

bad compared to some of the others but it's not the best so now I'm going to walk you through the criteria that I use for scanning to come up with an initial list of dividend paying stocks that I can then look at more carefully to decide which ones on that list I think could be suitable for a longer term investment okay so number one I look at the dividend yield and I have a minimum as 2% this is a little bit High there are some great dividend paying stocks that are lower than that but 2%

is nice now again this is where it's a little bit tricky because if you've got a only $1,000 account you know 2% is 20 bucks a year I mean it's just not worth it and to be honest even with a for or $5 million account only um 2% is still very low except when you factor in that this is a defens a more defensive investment where you will also most likely benefit From underlying growth of the stock so you get the 2% annual payout in a dividend and then also you're getting the underlying growth payout

ratio I like to see that it's under 80% so the company's not burdened by the payout even that's a little high um the return on Equity I just want see that it's positive the stock has to have options so I have to be able to trade options on it that way I can maximize on my profit Potential from holding the position the Average volume I'd like to see over a million shares a day now you know this is you could you could move this one around you could make it a little lower if you wanted

to but if you have lower volume then it's not going to be as liquid it's not going to be as easy to get in and out I like to say I like to see earnings per share growth in The Last 5 Years at 5% and earnings per share growth in the next years estimated at 5% I want to see that their gross Margin is positive and I want to see the price is above $50 so I use finviz for this scan finis is a free scanning software and so you know it's free there's a lot

of ads on it so it's could be a little bit annoying there but it is free and this is good for scanning it's not real-time Market data but that's okay for creating a list like this so I've already plugged in all of these um criteria earnings per share passy 5 years next 5 years Dividend yield payout ratio under 80% uh return on Equity positive gross margin positive optionable over a million shares of volume and price over 50 and we just eliminated from the entire stock market of nearly 10,000 stocks we've got 38 stocks on this

list right now so these are 38 possible stocks that I would be considering we've got CCO locked Martin um APD UNP Union Pacific ADP Dick Sporting Goods Hershey I mean there There's a lot of companies on here that you know Proctor and Gamble GPC genuine parts uh there maybe some companies on here that you're not familiar with but we'll be able to look at those charts and then get into some more detail now if I change the volume to over 500,000 shares that gives us a couple more stocks we come up to 43 total so

you know a few more come in you wouldn't want to go much lower than that because then you'd be dealing with something That's really not liquid if you changed the dividend yield to 1% that's going to double the number that are on here but again then you're only getting 1% I mean at that point just for the sake of argument you'd actually be better off in a way just with a treasury or or a bond 1% is just so low 2% is already pretty low but that's just what I have said as the minimum and

the rest of these are pretty much non-negotiable a lower price the The problem with lower price is that um generally I find that these on ones are not as good on the options side and I want I want a stock that I can trade options on because that's going to allow me to significantly increase how much I can make all right so once I have this list here then we go on to the next step of reviewing the results so I can begin sorting and reviewing them I start with a review of the chart and

I pref I look at the daily chart and I prefer to see Stocks they're trending up and are above the 200 EMA certainly I'm not interested in buying a stock that's been selling off or going sideways it's it's possible that there could be a stock that's on this list that um you know that is not positioned very well for whatever reason that the daily chart just isn't that great um it's not impossible so I'm going to avoid any of those stocks I'm going to focus on stocks that have u a nice position rela to the

200 EMA now I Can program some of that into the scanner if I want to I could do let's see um 200 day EMA I could just say price above the 200 day um Ma and that brought it down to 25 stocks so it did it did reduce it a little bit so you could go ahead and add that um there'd be nothing wrong with that there might be a stock that's just below the 200 that could be interesting that you're cutting out but but that would probably be okay to to make that step um

Currently I'm avoiding oil stocks um energy stocks I don't love the sector I I'm a little concerned about what the next 10 years is going to look like for these companies so I'm just leaving those ones Alone um and although there are some great stocks that are priced higher I'm also a little bit more cautious on them because the problem is for me in order to trade options on these stocks and I'll explain more about this um as we get into the class a Little bit further but in order to trade options I need to

be able to buy at least 100 shares so a 100 shares of a $700 stock is $75,000 you know now we're talking about a lot of money and I just might not you know feel comfortable putting that much money into one position so that's something I have to be aware of I naturally prefer stocks I'm familiar with where I can understand their business model and how they make money I Just feel more confident buying something I understand I also avoid stocks with large amounts of debt or negative shareholder Equity um so and I'll I'll explain

more about that in just a moment so I take all of this um I take these results here and then I put them into a um an Excel sheet that I use and this sheet uh is something I've been using for quite a while and I I love it because it just allows me I'll pull it up on the screen Here it allows me to look at these stocks and compare them and I can sort this data in a number of different ways now I don't want to make this feel overwhelming or complicated so as

you look at this sheet there's a lot of numbers this really does have a lot of data and the reason that I can't share this with you is because I I'm subscribed to a market data vendor that allows me to API into here so if I shared the doc with you the calculations Won't won't work um so in any case this is a doc that I have that I like and usually what I do is I'll put all the stocks into this list so let's see so these were the ones from Costco down that I

just put in from today's import um and then what I'll do is I'll start looking at the actual charts of these I for me I'm a Trader first so it's easier for me to look at the chart and understand whether or not I want to look at the stock any further so what I do I Pull up a stock chart like Costco and I want to see the pric is above the 200 moving average of course we know it should be because of the scan but I know that the 200 is considered a very logical

level of support so if the stock is way above it as it is in this case then I'd be buying it pretty high if I got in up here so purely from a technical perspective when I look at something like this um this is a pretty big selloff that it just had so it's not Great if if I got in it here I would probably want to set a stop at the low of this recent pullback because if it breaks that low to me then it's just stair stepping down but I I honestly don't think

that this is a great pattern because it's not clear that it's really holding any clear level of support from a technical perspective from the fundamental perspective when we just look at Costco and that's just going to be this line here what we see is that um They've had threeyear three-year dividend increasing is fine uh I have to double check this number cuz this is actually the dividend per share uh is showing higher on uh two different data vendors so I've just got to double check it that's common you've got to double check it when it

seems unusually low you want to just double check it so it's I think it's actually quite a bit higher than this because we know it had to be above 2% minimum uh so Nonetheless um so I I would just double check that but the earnings over the last three years are growing so that's great the payout ratio is 27% so that's great they're not overwhelmed by paying out their dividend they've got free cash flow they've got free cash flow growth in the last 3 years although it's smaller Last 5 Years and last 10 years are

better the PE Ratio is 47 it's a little high um compared to the S&P 500 but it Which is uh currently I think about 1918 1819 but it's not too bad um total Equity fine cash and cash equivalence is good you me this is a very rudimentary analysis but I also am able to compare it to other um other companies on this list and so I color where uh stocks that stand out in a positive way um I'll see or in a negative way and everything else is like okay it's it's on par with with

the other companies so it's all right um Let's see so Costco was down here um not a lot of debt so uh debt to shareholder ratio is very low um that's great so from a technical perspective and from a fundamental perspective here this is more of the nitty-gritty this looks okay so I would say this is something that I could be interested in now it's just a question of do I like the price do I like it well enough as it sits right now oops that was um GE let me just confirm um yeah but

do I like it as it sits Right now maybe not quite in from the price perspective from the chart but I can keep it on my watch list and then I just keep going down the list so I'll look at the next one Lockheed Martin I look at locked Martin and I see H gosh it's right just at that 200 and it's got a history of being below it so that chart to me doesn't look super strong also it's worth noting this is a more expensive stock at you know $400 right now so um next

one down APD now APD I already marked in red I had scrolled over and I had noticed that that um they're not producing free cash flow that's a problem so I was like nope don't like that one so from that perspective even though again I could double check the data um but uh it's indicating no so I'd move on to the next one regardless the chart doesn't look that great anyways so so that one's off the list um I keep going down and I just keep looking at each one of these from a Chart perspective

it's hard for me to feel good about buying a stock when the chart looks terrible and that's just the way it is for me because I've been a Trader for so long I would prefer to buy a dividend paying stock that is also trending nicely I'm going to feel better about that um so that was um so we had APD we had UNP that chart's fine I would feel fine about this um you've got a little bit of support in here seems to be holding this level Dick Sporting Goods again understand the company that's but

at this point right now this is one of those scenarios where it would have been awesome if were in it and then you had this Gap up on earnings but now it would feel like uh I got to wait for it to pull back a little bit so it just made a big jump uh on earnings um Hershey hsy so well maybe people aren't into chocolate right now that's that's a tough chart uh it's big selloff however Uh you do have support down here around 180 so if you get in a little bit lower maybe

but it's below the 200 moving average not very bullish that's again uh based on doing a combination of looking at the fundamentals and the the financial status of the company and also looking at the chart drri not bad um the dard and restaurants not a bad chart so you know this is um this is tolerable obviously the stock suffered big time in 2020 during the covid Pandemic lockdown but is back up now Target now we could look at Target I'm curious about Target's um free cash flow so they're producing free cash flow and and what

about their debt debts a little high uh compared to some of the other companies it's like five times more than than Hershey a lot more than Dick Sporting Goods you know so it's a little high but again household name but how do they compete you know with with Amazon stuff like that so unfortunately this Stock just looking at the chart is actually a little too volatile I would say even for a dividend stock it's up like 60% this year which is great but that's actually a little bit of a bigger swing than I be prepared

to be in uh we go to Proctor gamble next one down and this is going to be one that's much more stable in price right so this is sort of my process of going through the list and then what I'm able to do is generally come up with a short list and I Highlight a few of my favorites I say all right I like Qualcomm I like bmy Bristol Meers squid I like LMT lucky Martin I like you know and again maybe right now I don't like it today but big picture I could be okay

with it Coca-Cola CVS fizer Proctor gamble so I sort of make my my short list and then once I have that watch list I Can Begin sort of checking the stocks each day to see what the prices are now when it comes to actually taking my position First we've got understanding what dividend stocks are then we've got the process of building a watch list and now let's jump into chapter number three which is going to be actually Tak taking your first position all right so chapter three buying a dividend stock so the investing strategy the

process of actually buying well this is actually the easiest all you have to do is press the buy button you could do this on your mobile app so I guess doesn't have to be A very long chapter but there are some different ways that you can create a position so once I've made my short list of the stocks I like I can begin looking for entries knowing that trying to time the market has been proven to be ineffective the better strategy is to just break the ice and take a position so I can begin selling

options against that position I could start by selling what are called Cash secured puts until I fill my initial position now that may Be like foreign language to you you don't understand what that means so I'm going to talk about what that means in just a second but I also want to make sure that I enroll my account in drip drip is dividend reinvestment plan it means that when you get a dividend that dividend is automatically reinvested into the company so rather than receiving a check and just having cash in your account you actually buy

more shares with the dividend that comes in And this is what people like Ronald Reed Mr Reid would have done is they just keep reinvesting reinvesting reinvesting so while the easiest way would just be to open your trading platform type in Proctor Gamble and click the ask to buy you know 100 shares or whatever it is that you want to buy um there is another strategy and this is going to get right into chapter 4 so like I said chapter 3 is very quick chapter 4 is called Cash secured puts this is an options trading

Strategy and it does something pretty interesting when you sell a cash secured put you're selling someone an option contract as the seller of the contract you have an obligation if you buy a put contract you're buying the right to sell stock at a set price a put contract can be used to protect to protect against the downside risk when you're holding a stock so let's say for instance you buy a stock you buy 100 shares of a stock at Um you know $200 a share and then you also buy one contract which is uh equals

100 shares to sell the stock at $190 a share if you did that if the stock drops overnight to $50 a share how much are you down well your 100 shares in with your 100 shares right here it's true that you would be down uh $150 a share but you also bought right here the right to sell 100 shares at 190 so on that position you're in the positive so this is called a hedge and it actually Reduces your risk so you're actually only risking in this case $10 a share so options are very popular

because they allow investors big investors and small Traders like myself or or perhaps you as well to hedge positions but they can also do something kind of cool what you could do is you could sell someone you could sell someone a put contract and if you sell somebody a put contract you are required to then buy the 100 shares that they want to sell so if you already want To buy the stock in the first place then I could pull up this chart and I could say well geez I already said oh I want to

get my chart I already said that I want to buy um what was it um we'll pull up um Proctor gamble just for instance doesn't matter we'll pull up Proctor gamble let's say well I already want to buy this if it comes down to the 200 moving average at 152 so I don't mind selling someone the right to sell me shares right Not only Would I sell them that and when you sell a put contract you would get paid a little bit of money now you are on the hook to buy their 100 shares it

is an obligation and so it's going to tie up that buying power as if you already own the position but it allows you to make a little bit of money and then just wait for the stock to come down now if the stock never comes down then you don't have to buy the shares from that person because The the stock never went that low which means you just get to keep the premium that you made from selling them that contract and then you do it again and you can do it a couple times until you

eventually fill your position now I I sense that you might be feeling a little overwhelmed because what we're getting into right now is options trading strategy and options trading strategy is a little different and more advanced than simply dividend investing so Perhaps maybe the best thing to do the next chapter here by the way I was going to go into um selling covered calls and selling covered calls is a really popular way to generate income from your existing position what you're doing with a covered call is you are selling someone the right to buy your

shares but you put it out at a higher price so if you're in a stock at let's say $0000 you sell someone the right to um buy your shares at 2110 and you'll make a little bit of money when you sell them that contract but if the stock comes up to 210 you have no choice but to sell your shares so usually what Traders will do is they'll continue to sell a contract to sell their shares just a little bit above where they think their Shares are likely to be at the end of the contract

term that way they get to keep the money from selling the contract and they also get to keep their shares that's the Perfect world so you get to make a little extra money selling this option selling this contract but you don't have to give up your shares but if the stock does go up to that level well you got to sell your shares so I think for this episode maybe what we should do is we should end it here with the focus being on how to find the best stocks for the dividend investing strategy and

to Simply execute the strategy based on saying I like this stock I want to own It I think it's going to be here in 10 years and 15 years years so I feel comfortable buying it here and adding to the position as it goes on and I don't have to think about it any more than that I'm not going to mess around with selling C cover calls I'm not going to mess around with trying to do cash secured puts and do options trading that's over my head I don't want to do that right now for

right now I just want to be a dividend investor and Ross this Class has been great thank you for saying that by the way I hope you hit a thumbs up I hope you subscribe and you know what if you want to learn a little bit more about options trading I'll have another class that you can watch dedic ated to a beginner's guide to option trading so make sure you stay tuned for that thanks as always for tuning in I'll remind you as always that trading is risky my results aren't typical so man your wrist

take it slow I'll see you Here for the next episode